Home / Business and Economy / UPI Charges Loom: Government Considers Merchant Fees
UPI Charges Loom: Government Considers Merchant Fees
4 Aug
Summary
- Government proposes bill to allow MDR on some UPI transactions.
- MDR, if reintroduced, would be paid by merchants, not consumers.
- RBI would need to issue new rules for MDR to be implemented.
A proposed amendment to the Payment and Settlement Systems Act, 2007, introduced in Lok Sabha, could pave the way for Merchant Discount Rate (MDR) to be charged on some Unified Payments Interface (UPI) transactions. Currently, UPI transactions are free for consumers and merchants, with costs borne by the payment ecosystem. This amendment seeks to remove the legal prohibition on charging such fees.
If the bill is passed, the Reserve Bank of India (RBI) would gain the authority to reintroduce MDR. Industry experts suggest that any potential MDR would likely apply to large merchants and high-value transactions, and importantly, it would be paid by the merchant, not the consumer. This mirrors the existing system for card payments.
The move is intended to address the lack of a sustainable revenue model for payment processing companies, which have reported significant losses despite handling a large volume of transactions. The government aims to ensure consumers continue to use UPI frictionlessly while establishing a monetization mechanism for the ecosystem.
However, the proposed amendment does not automatically reintroduce MDR. The government or RBI would need to issue further notifications specifying the exact modalities, including which payment modes are covered, which merchants are affected, and the applicable rates. Until then, UPI transactions remain free.
